Time for President to raise the debt ceiling is approaching fast

Peter S. Cohan, WALL & MAIN

Published Wednesday October 16, 2013 at 6:00 am

There are about 314 million people in the U.S.

And Rolling Stone reported that 174 Tea Party Republicans — members of the Republican Study Committee that is behind the effort to defund the Affordable Care Act — are the force behind the stalemate over raising the debt ceiling and reopening the Federal government.

By the morning of October 15, there was some progress towards a possible deal in the Senate, but that deal would need to make it through the House before getting to the president's desk — where it could still be vetoed.

If October 17 arrives with no law to raise the $16.7 trillion debt ceiling, the U.S. will either default on its debts — with catastrophic consequences — or the president can unilaterally raise the debt ceiling. The increasingly likely question is not whether he will do so, but when.

The U.S. breached its debt limit in May 2013, but thanks to so-called extraordinary measures valued at $412 billion, the U.S. has been able to continue paying its bills. But on October 17, the extraordinary measures run out, according to the Washington Post.

The good news is that on average, the U.S. brings in enough tax revenue to pay about 68 percent of its bills. More specifically, the Bipartisan Policy Center estimates that U.S tax revenues between October 18 and November 15 will total $222 billion and the U.S. will owe about $328 billion.

The real day that the U.S. misses its first deadline to pay a bill in its history should be November 1. The U.S. will have the $12 billion it needs to make Social Security payments on October 23 and should have the cash to pay the $6 billion it owes on its debt on October 31. But on November 1, the U.S. will not have the $58 billion it owes in Social Security payments, disability benefits, Medicare payments, military pay, and retiree pay.

If the debt ceiling is not raised, the federal government will only be able to pay out the amount it receives from tax revenue. That means, overall payments would plunge by 32 percent — amounting to 4.2 percent of U.S. Gross Domestic Product, according to Goldman Sachs.

Treasury Department view the consequences for financial markets as extremely grim. It wrote, "Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."

This could be avoided if Congress sent a bill to raise the debt ceiling by $1.1 trillion to Mr. Obama's desk for his signature by October 17. But if that does not happen, the resulting freeze in the global financial system would constitute an emergency.

Under the 14th Amendment, Mr. Obama could cite his inherent emergency powers once financial markets begin to freeze up. That amendment provides that the "the validity of the public debt … shall not be questioned," and if Congress violates its duty to protect the debt's validity, the president can act argued Princeton history professor, Sean Wilentz. While Mr. Obama is reluctant to set such a precedent and many argue that Wilentz's view is an impeachment trap, the alternative of a debt default would be much worse.

To be sure, the timing of President Obama's seizure of his emergency powers to protect the validity of the public debt would have to be properly timed. If he raises the debt ceiling before the financial markets seize up, he could be at risk of impeachment. But if he does so just as the financial markets are collapsing, invoking the 14th amendment and raising the debt ceiling would be the least constitutionally risky alternative, Neil Buchanan, a law professor at George Washington University, told Bloomberg.

America can no longer take pride in its system of government. What is happening looks to me — and most likely the rest of the world — as an embarrassment. Thanks to Republican gerrymandering — wherein congressional districts are redrawn to preserve the power of their politicians — the will of the people has been ignored.

In November 2012, 1.4 million more Americans cast their votes for Democratic House candidates than voted for Republicans. But Republicans managed to retain a big House majority. Larry Sabato, director of the Center for Politics at the University of Virginia, said, "Gerrymandering saved them."

Today, the number of true swing districts in the House is tiny. Only 17 Republicans won in districts that Barack Obama won. At the same time, the number of "landslide districts" – Nate Silver's term for districts that are 20-plus points more Republican than America – has risen 34 percent from 92 in 2003 to 125 today.

Restoring democracy to America is something I believe most of our 314 million residents want. The will of 174 Republican Study Committee members should not subvert the will of the rest of the country. But fixing that problem will have to wait for another day.

Unless he gets a bill from Congress to raise the debt ceiling, on or about November 1, President Obama ought to invoke the 14th amendment and raise it unilaterally.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy and entrepreneurship at Babson College. His email address is peter@petercohan.com.